Topic 3

Question 1

bonds

Answer 1

long-term debt securities

Question 2

notes

Answer 2

unsecured debt securities

Question 3

coupon payments

Answer 3

the stated interest payments made on a bond (face value x coupond rate)

Question 4

face value

Answer 4

the principal amount of a bond that is repaid at the end of the term (also par value)

Question 5

par value

Answer 5

the face value of the bond

Question 6

coupon rate

Answer 6

is the annual coupon divided by the face value of a bond

Question 7

maturity

Answer 7

is the number of periods remaining till the principal amount is payable

Question 8

yied to maturity(YTM)

Answer 8

is the market interest rate that is required in the market on a bond

Question 9

bond at par

Answer 9

If the market interest rate is the same as the coupon rate, the bond’s value is the same as the face value

Question 10

a discount bond

Answer 10

If the market interest rate rises above a coupon rate, the bond’s value falls below the face value.

Question 11

a premium bond

Answer 11

If the market interest rate falls below the coupon rate, the bond’s value rises abouve the face value

Question 12

Bonds or debentures
Yied 12%
$1000 face value
Coupon 10% p.a. paid semi annually
ie 5% semi annually =$50
Term to maturity 5 years
ie 5 x semi annually = 10 payments
Market value of Debenture ?

Answer 12

$926